Q2 2026 CNB Financial Corp Earnings Call
Speaker #1: Key, followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press stars and 1 on your touchstone phone, and to withdraw your question, please press stars and 2.
Speaker #1: Good afternoon, and welcome to Occidental's second quarter 2026 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Speaker #1: Please note today's event is being recorded. I would now like to turn the conference over to Michael Paduzi. The president and CEO of CNB FINANCIAL CORP and its main operating entity, CNB Bank.
Speaker #1: Please go ahead.
Speaker #2: Good afternoon. I'm Michael Paduzi, the president and CEO of CNB FINANCIAL CORP and its main operating entity, CNB Bank. I'm pleased to welcome you to this quarterly call to review our financial position and performance for the period ending June 30, 2026.
Speaker #1: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1, on your telephone keypad.
Speaker #1: To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to Baba Tunde Cole, Vice President of Investor Relations.
Speaker #2: Joining me today is our chief financial officer, Tito Lima. Our chief operating officer, Michael Noah, and our chief credit officer, Greg Dixon. Following the overview and presentation of our financial highlights, we will have time available for questions from those calling into today's presentation.
Speaker #1: Please go ahead.
Speaker #2: All right. Thank you, Gary. Good afternoon, everyone, and thank you for participating in CNB Financial Corp's second quarter 2026 earnings conference call. On the call with us today are Richard Jackson, President and Chief Executive Officer; Sunil Mathews, Senior Vice President and Chief Financial Officer; and Ken Dillon, Senior Vice President and President, International Oil and Gas Operations.
Speaker #2: I will begin by reviewing the key highlights of our performance and will provide a quick refresher on our franchise and operating model. I will then turn over the discussion to Tito Lima to address some of the more notable specific measures.
Speaker #2: This afternoon, we will refer to slides available on the investor section of our website. The presentation includes a cautionary statement on slide 2 regarding forward-looking statements that will be made on this call this afternoon.
Speaker #2: An underlying theme of our presentation will be the win-win results we have seen, including both the favorable realization of the projected benefits since our acquisition of ESSA in July 2025 and the parallel performance over that same period from the continued growth success in the core CNB Bank franchise and our legacy markets.
Speaker #2: We will also.
Speaker #2: Key goals of our franchise for both recent periods and as we look forward is to both realize the benefits of the scale from adding such a qualitative franchise that is now our ESSA division, and promoting the sustainability of our earnings revenues and expense control.
Speaker #2: Evidencing this, our second quarter 2026 earnings per share on a fully diluted basis of 91 cents reflected a continued growth over 88 cents for the first quarter of 2026.
Speaker #2: It was also a fourth consecutive quarter of EPS growth, exclusive of one-time merger-related and gap adoption cost, since the second quarter of 2025 when we earned 61 cents per share, which was the last full quarter before our merger with ESSA in July 2025.
Speaker #1: And the parallel performance over that same period, from the continued growth success in the core CNB Bank franchise and our legacy markets. Key goals of our franchise for both recent periods and as we look forward is to both realize the benefits of the scale from adding such a qualitative franchise that is now our ESSA division, and promoting the sustainability of our earnings revenues and expense control.
Speaker #2: Year over year, the second quarter of 2026 represents a very favorable 49% EPS improvement over the second quarter of 2025. Operating revenues increased from over 61 million for the second quarter of 2025 to over 87 million for the second quarter of 2026, reflecting a 43% increase year over year.
Speaker #1: Year over year, the second quarter of 2026 represents a very favorable 49% EPS improvement over the second quarter of 2025, operating revenues increased from over $61 million for the second quarter of 2025 to over $87 million for the second quarter of 2026, reflecting a 43% increase year over year.
Speaker #2: And our efficiency ratio on a fully tax-equivalent basis favorably decreased from just under 65% for the second quarter of 2025 to approximately 56% for the second quarter of 2026.
Speaker #1: Evidencing this, our second quarter 2026. The important consecutive quarter of EPS growth, exclusive of one-time merger-related and gap adoption costs, since the second quarter of 2025, when we earned 61 cents per share—which was the last full quarter before our merger with the SSA in July 2025.
Speaker #1: And our efficiency ratio, on a fully tax-equivalent basis, favorably decreased from just under 65% for the second quarter of 2025 to approximately 56%. Thank you, Mike.
Speaker #2: As Tito Lima will discuss shortly, the year-over-year positive operating revenue earnings accretion and improved expense management with our greater scale aligns with what we projected when modeling the merger.
Speaker #1: Good afternoon, everyone. Our second quarter of this year continued to demonstrate the strength of CNB's financial performance, credit quality, and capital build. I will start my remarks with slide 4 of the earnings supplement deck.
Speaker #2: But we have performed even better than we modeled for the post-merger period because we have not only positively realized the expected accretion and efficiencies from the ESSA acquisition, in parallel, we have experienced sound growth in our core franchise in the five other banking divisions under CNB Bank.
Speaker #1: Earnings per common share of $0.91 for the second quarter of this year reflected an impressive increase of 13.7% on an annualized basis from last quarter, driven primarily by our net interest margin.
Speaker #2: This gives us an opportunity to note, especially for our newest investors, that although our banking entity is operated under one charter as CNB Bank, in markets outside of our original central Pennsylvania region, we operate with divisions doing business under more regionally focused or market legacy brands.
Speaker #1: Our return on tangible common equity for the second quarter of this year remained strong at 15.2%, and exceeded our prior quarter level of 14.9%.
Speaker #1: In the meantime, our fully tax-equivalent net interest margin of 3.89% for the second quarter compared to 3.84% in our last quarter. As it relates to capital, as a result of our continued strong level of earnings and profitability, CNB's tangible book value per common share increased at an annualized rate of 12.7% during the second quarter, compared to the prior quarter.
Speaker #2: As of now, the corporation has 6 different branded operating divisions. The legacy CNB Bank operates in West Central Pennsylvania, headquartered in Clearfield, and extending as far north as Bradford at the Pennsylvania-New York border, eastward to State College, and south to both Altuna and Westmoreland County in Pennsylvania.
Speaker #2: The other divisions of CNB Bank include a region in Northwestern Pennsylvania and Erie, extending across Northeast Ohio into the greater Cleveland market, where we successfully operate in that region as Erie Bank.
Speaker #1: This level of growth, coupled with our dividend yield of approximately 2%, provides an attractive total return to our shareholders. Slide 5, please. As it relates to growth, our originated loans—which exclude syndicated loans—grew at an annualized rate of 4.1% during the second quarter, compared to our prior quarter.
Speaker #2: In Western New York, extending from Buffalo to Rochester, we operate as Bank on Buffalo. In the greater Columbus, Ohio market, where we entered more than 10 years back with the acquisition of the then-Farmer's Citizens Bank, we now operate as FC Bank.
Speaker #1: Even more impressively, the primary driver of originated loan growth was our commercial and industrial loan portfolio, which grew at an annualized rate of 18.2% in the second quarter compared to the prior quarter.
Speaker #2: In the Southern Virginia market, headquartered in Roanoke, Virginia, and extending the neighboring states, we operate as Ridgeview Bank. And of course, with our 2025 acquisition, we operate in Northeastern Pennsylvania as ESSA Bank, which covers not only ESSA's legacy market in East Stroudsburg, Pennsylvania, but also with meaningful retail and commercial presence in the Allentown, Bethlehem, Easton, and Wilkes-Barre Scranton corridors.
Speaker #1: As a result of our team's relentless focus on this highly profitable portion of our loan portfolio, and in relation to funding our growth, deposits—including deposits held for sale—declined at an annualized rate of 3.8% from our last quarter.
Speaker #1: Driven solely by our net interest margin strategy, aimed at deploying excess liquidity toward exiting higher interest cost, single-thread deposit relationships. Excluding the impact of this corporate strategy, our deposits, including deposits held for sale, increased at an annualized rate of 4% in the second quarter, compared to the last quarter.
Speaker #2: Tito, I think that gives our investors a quick summary of the key indicators of our current positive performance and an updated profile of our franchise and where we are able to generate our operating success.
Speaker #2: So now I'll ask you to share even greater details and insight into our critical financial measures.
Speaker #3: Thank you, Mike. Good afternoon, everyone. Our second quarter of this year contained to demonstrate the strength of CNB's financial performance, credit quality, and capital build.
Speaker #3: I will start my remarks on slide 4 of the earnings supplement deck. Earnings per common share of 91 cents for the second quarter of this year reflected an impressive increase of 13.7% on an annualized basis from last quarter, driven primarily by our net interest margin.
Speaker #3: Our return on tangible common equity for the second quarter of this year remained strong, at 15.2%, and exceeded our prior quarter level of 14.9%.
Speaker #3: In the meantime, our fully tax-equivalent net interest margin of 3.89% for the second quarter compared to 3.84% in our last quarter. As it relates to capital, as a result of our continued strong love of earnings and profitability, CNB's tangible book value per common share increased at an annualized rate of 12.7% during the second quarter compared to the prior quarter.
Speaker #3: This level of growth, coupled with our dividend yield of approximately 2%, provides an attractive total return to our shareholders. Slide 5, please. As it relates to growth, our originated loans, which exclude syndicated loans, grew at an annualized rate of 4.1% during the second quarter compared to our prior quarter.
Speaker #3: Even more impressively, the primary driver of originated loan growth was our commercial and industrial loan portfolio, which grew at an annualized rate of 18.2% in the second quarter compared to the prior quarter.
Speaker #3: As a result of our teams relentless focus on this highly profitable portion of our loan portfolio. In relation to funding of our growth, deposits, including deposits held for sale, declined at an annualized rate of 3.8% from our last quarter, driven solely by our net interest margin strategy aimed at deploying excess liquidity toward exiting higher interest cost single-thread deposit relationships.
Speaker #3: Excluding the impact of this corporate strategy, our deposits, including deposits held for sale, increased at an annualized rate of 4% in the second quarter compared to the last quarter.
Speaker #3: Even more impressively, our non-interest-bearing deposits grew at an annualized rate of 8.1% during the second quarter compared to the last quarter, driven primarily by growth in our treasury management business, which continues to deliver impressive levels of growth and profitability.
Speaker #3: As it relates to liquidity, our available liquidity continues to be strong, at 4.8 times the level of adjusted uninsured deposits. Mike, last but certainly not least, our overall credit quality profile remains strong and stable.
Speaker #3: This concludes my remarks.
Speaker #2: Tito, thank you so much for this detail. And yes, this fundamental to our strength in capital and liquidity management is our historical commitment and track record of sound credit quality.
Speaker #2: Just to review some key metrics related to this. Our ACL to loans is 1.04% both in the second quarter and first quarter. Net charge-offs were 9 basis points in Q2 and 6 basis points in Q1.
Speaker #1: Even more impressively, our non-interest-bearing deposits grew at an annualized rate of 8.1% during the second quarter, compared to the last quarter. Driven primarily by growth in our treasury management business, which continues to deliver impressive levels of growth and profitability.
Speaker #2: Delinquency is relatively stable at 81 basis points for the second quarter and 80 basis points for the first quarter, with a very diligent collections team continuing to see opportunities for workouts and seeking to even further reduce these levels.
Speaker #1: As it relates to liquidity, our available liquidity continues to be strong, at 4.8 times the level of adjusted uninsured deposits. Mike, last but certainly not least, our overall credit quality profile remains strong and stable.
Speaker #2: Our non-performing assets to total assets was 69 basis points in the second quarter, versus 58 points in the first quarter. The increase was more of a one-off credit than an industry or policy settings matter.
Speaker #1: This concludes my remarks.
Speaker #2: So, like any bank, we always seek minimal issues with our portfolio and we believe these measures are not out of alignment with the general conservative risk profile of our underwriting practices.
Speaker #2: Thank you. Thank you so much for this detail. And yes, this fundamental strength in our capital and liquidity management is rooted in our historical commitment and track record of sound credit quality.
Speaker #2: We remain very fortunate to have someone of Greg Dixon's caliber and experience as our chief credit officer, much like we are fortunate to have an executive and financial manager of your caliber as our CFO, Tito, and we appreciate the quality and transparency you continue to provide the management, board, and current and prospective investors of CNB.
Speaker #2: Just to review some key metrics related to this: our ACL to loans is 1.04% in both the second quarter and the first quarter. Net charge-offs were 9 basis points in Q2 and 6 basis points in Q1.
Speaker #2: Delinquency is relatively stable at 81 basis points for the second quarter and 80 basis points for the first quarter, with a very diligent collections team continuing to see opportunities for workouts and seeking to further reduce these levels.
Speaker #2: At this time, we will now turn to the Q&A segment of this call.
Speaker #4: Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using the speakerphone, we ask that you please pick up your handset before pressing the keys.
Speaker #2: Our non-performing assets to total assets was 69 basis points in the second quarter, versus 58 basis points in the first quarter. The credit, then, an industry or policy settings matter.
Speaker #4: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Once again, that's star then 1 if you have a question.
Speaker #2: So, like any bank, we always seek minimal issues with our portfolio, and we believe these measures are not out of alignment with the general conservative risk profile of our underwriting practices.
Speaker #4: And as a reminder, ladies and gentlemen, if you do have a question, please press star then 1 at this time. And our first question today comes from Daniel Cardenas with Green Capital.
Speaker #2: We remain very fortunate to have someone of Greg Dixon's caliber and experience as our chief credit officer, much like we are fortunate to have an executive and financial manager of your caliber as our CFO, Tito. We appreciate the quality and transparency you continue to provide to management, the board, and current and prospective investors of CNB.
Speaker #4: Please go ahead.
Speaker #5: Hey, good afternoon, guys.
Speaker #2: Hey, Daniel. Good afternoon.
Speaker #5: Yeah, thanks. Same. So with the ESSA now, you're one year into the transaction. Maybe if you could provide us some color as to your thoughts on additional M&A transactions and then perhaps your thoughts on organic growth via loan production offices over the next 12 to 18 months.
Speaker #2: At this time, we will now turn to the Q&A segment of this call.
Speaker #3: Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys.
Speaker #3: If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. Once again, that's star, then 1 if you have a question.
Speaker #2: Thank you, Daniel, for your question. This is Mike. I'll handle the question regarding the M&A. We're really pleased with how well ESSA has worked out and really I think it was a great effort on our team for due diligence and everything.
Speaker #3: And as a reminder, ladies and gentlemen, if you do have a question, please press star then 1 at this time. And our first question today comes from Daniel Cardenas with Green Capital.
Speaker #2: And why I say that is, as we just passed a 12-month anniversary, we're really realizing all the expected benefits. We're creating even more than we expected from the ESSA side of the deal.
Speaker #3: Please go ahead.
Speaker #2: And in parallel, because our core divisions have done so well, we're looking at an earn-back period of probably less than 18 months versus what we originally modeled as 3 years.
Speaker #4: Hey, good afternoon, guys.
Speaker #2: Hey, Daniel. Good to hear from you.
Speaker #2: So that's going very well. We still think, with the merger having happened in July 2025 and the conversion in November 2025, we're making sure that everything in this post-6, 7-month period since the system conversion is all working smoothly.
Speaker #4: Thanks, same. So with the ESSA now, you're one year into the transaction. Maybe if you could provide us some color as to your thoughts on additional M&A transactions, and then perhaps your thoughts on organic growth via loan production offices over the next 12 to 18 months.
Speaker #2: It has so far. We believe we have the scale to continue to add on. And we will look for those opportunities. I will tell you, Daniel, that it's probably focused as much on not only qualitative growth, which is what we're always going to do, but also looking forward toward the $10 billion threshold that we don't want to just acquire and crawl right up to that line.
Speaker #2: Thank you, Daniel, for your question. This is Mike. I'll handle the question regarding the M&A. We're really pleased with how well ESSA has worked out—really, I think it was a great effort by our team for due diligence and everything.
Speaker #2: As you know, the Durbin Amendment impact and everything would be significant. And we believe we're going to grow very well both organically and both interest income and non-interest income to support that change when it happens.
Speaker #2: And why I say that is, as we just passed a 12-month anniversary, we're really realizing all the expected benefits. We're accreting even more than we expected from the ESSA side of the deal.
Speaker #2: But I would suggest that as opportunities come, probably focus mostly within gaps in our four state current area. We will take advantage of that.
Speaker #2: And in parallel, because our core divisions have done so well, we're looking at an earn-back period of probably less than 18 months, versus what we originally modeled as 3 years.
Speaker #2: But I would expect for the rest of this year, the key focus right now is continuing to maximize the benefit of this. This ESSA merger.
Speaker #2: So that's going very well. We still think, with the merger having happened in July 2025 and the conversion in November 2025, we're making sure that everything in this post-6- or 7-month period since the system conversion is all working smoothly.
Speaker #2: And then as far as LPOs go and things like that, Daniel, that's a really great question because that's been a good philosophy for us.
Speaker #2: Although we're early on with Erie Bank and some of our other de novos, we kind of went headfirst in with, say, multiple branches in one state.
Speaker #2: It has so far. We believe we have the scale to continue to add on, and we will look for those opportunities. I will tell you, Daniel, that it's probably focused as much on not only qualitative growth—which is what we're always going to do—but also looking forward toward the $10 billion threshold. We don't want to just acquire and crawl right up to that line.
Speaker #2: When we think about Roanoke, which was our last de novo, we started with an LPO and now it's 3 branches and looking to be 4.
Speaker #2: So as we identify markets that have great C&I, particularly opportunities, because in that pairs with a treasury management, we will most definitely look towards that.
Speaker #2: As you know, the Durbin Amendment impact and everything would be significant. And we believe we're going to grow very well both organically and in both interest income and non-interest income to support that change when it happens.
Speaker #2: I think when we think about our core legacy division, we for years were right here near State College and mostly use that as an LPO.
Speaker #2: After kind of making that an LPO on steroids, I'll call it, we now have a full branch presence there and probably looking to even further expand our State College presence.
Speaker #2: But I would suggest that as opportunities come, probably focus mostly within gaps in our four-state current area. We will take advantage of that. But I would expect for the rest of this year, the key focus right now is continuing to maximize the benefit of this.
Speaker #2: So we'll look at areas that are contiguous to CNB, if you think about Ohio and we're in Columbus and Cleveland, there's areas like Dayton and Akron that provide us those kind of opportunities.
Speaker #2: This ESSA merger. And then as far as LPOs go and things like that, yeah, that's a really great question because that's been a good philosophy for us.
Speaker #2: Certainly being an ESSA, we have 5 great cities to work with with Allentown, Bethlehem, East Stroudsburg, Wilkes-Barre, Scranton. That's a great opportunity. So I don't know that we'll do any LPOs up there, but that is a good strategy that we'll continue to deploy to fill in the gaps, Daniel.
Speaker #2: Although we're early on with Erie Bank and some of our other de novos, we kind of went headfirst in with, say, multiple branches in one state.
Speaker #2: When we think about Roanoke, which was our last de novo, we started with an LPO and now it's three branches and looking to be four.
Speaker #2: Thanks again for your question.
Speaker #5: Great. Great. Thanks. I'll step back for right now.
Speaker #2: So as we identify markets that have great C&I, particularly opportunities, because that pairs with that treasury management, we will most definitely look towards that.
Speaker #4: Thank you. And that does conclude our question-and-answer session. I'd like to turn the conference back over to Michael Paduzzi for any closing remarks. Sir?
Speaker #2: I think, when we think about our core legacy division, we, for years, were right here near State College and mostly used that as an LPO.
Speaker #2: Thank you. We greatly appreciate the confidence so many of you have in CNB Financial Corporation. Noted by your sustain and in some cases, increasing investment positions in our company stock.
Speaker #2: After kind of making that an LPO on steroids, I'll call it, we now have a full branch presence there and are probably looking to even further expand our State College presence.
Speaker #2: We also recognize the importance of your time. We hope we're able to provide you some valuable insights into our performance and financial conditions through the second quarter of 2026.
Speaker #2: So we'll look at areas that are contiguous to CNB. If you think about Ohio, and we're in Columbus and Cleveland, there are areas like Dayton and Akron that provide us those kind of opportunities.
Speaker #2: In closing, I want to provide two recognitions of key changes to our management and board. In the second quarter, we welcomed George Lugers as the president of our FC Bank division in the Greater Columbus, Ohio market.
Speaker #2: Certainly, being an ESSA, we have five great cities to work with: Allentown, Bethlehem, East Stroudsburg, Wilkes-Barre, and Scranton. That's a great opportunity. So, I don't know that we'll do any LPOs up there, but that is a good strategy that we'll continue to deploy to fill in the gaps, Daniel.
Speaker #2: George replaces Jenny Saunders. Jenny retired from the same position this past April. And George now brings to us an extensive commercial banking background and tremendous market knowledge and experience.
Speaker #2: Thanks again for your question.
Speaker #2: He's really been impactful and fully engaged in this short period since he started with us. We look forward to George providing the leadership for continued growth and market penetration in our FC Bank division.
Speaker #4: Great, thanks. I'll step back for right now.
Speaker #3: Thank you. And that does conclude our question-and-answer session. I'd like to turn the conference back over to Michael Paduzzi for any closing remarks. Sir?
Speaker #2: Also of note, board member Gary Olson resigned from his board position that he had held since the ESSA acquisition in July 2025. Although Gary's service as a board member was relatively short with CNB, his service with ESSA Bank extended over 40 years, including several as the president and CEO, and a board member of ESSA Bank up to the time of the merger with CNB.
Speaker #2: Thank you. We greatly appreciate the confidence so many of you have in CNB Financial Corporation. Noted by your sustain and in some cases, increasing investment positions in our company stock.
Speaker #2: We also recognize the importance of your time. We hope we're able to provide you with some valuable insights into our performance and financial condition through the second quarter of 2026.
Speaker #2: ESSA's incredible golden row culture, the line so well with that here at CNB, and the highly qualitative banking franchise that now serves as our ESSA Bank division, is a testament to Gary's dedication, and the strength and soundness of his leadership for decades.
Speaker #2: In closing, I want to provide two recognitions of key changes to our management and board. In the second quarter, we welcomed George Lugers as the president of our FC Bank division in the Greater Columbus, Ohio, market.
Speaker #2: George replaces Jenny Saunders. Jenny retired from the same position this past April. George now brings to us an extensive commercial banking background and tremendous market knowledge and experience.
Speaker #2: We thank him for all he has done for ESSA prior to the merger, thank him for his collaborative efforts and guidance through the due diligence and merger integration processes, and we thank him for his board support for CNB this past year.
Speaker #2: He's really been impactful and fully engaged in this short period since he started with us. We look forward to George providing the leadership for continued growth and market penetration in our FC Bank division.
Speaker #2: Thank you.
Speaker #2: Also of note, board member Gary Olson resigned from his board position that he had held since the ESSA acquisition in July 2025. Although Gary's service as a board member was relatively short with CNB, his service with ESSA Bank extended over 40 years, including several as the president and CEO, and as a board member of ESSA Bank up to the time of the merger with CNB.
Speaker #2: ESSA’s incredible presence here at CNB, and the highly qualitative banking franchise that now serves as our ESSA Bank division, is a testament to Gary’s dedication and the strength and soundness of his leadership for decades.
Speaker #2: We thank him for all he has done for ESSA prior to the merger. We thank him for his collaborative efforts and guidance through the due diligence and merger integration processes.
Speaker #2: And we thank him for his board support for CNB this past year. Thank you.
